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What is Limited Liability Partnership?

The Limited Liability Partnership Act was passed by the Parliament of India in the year 2008 for governing LLP businesses in the country. Section 2 of this law states that the LLP is a type of partnership that is registered under this act. Also, the LLP agreement refers to the written agreement between either the LLP partners or the LLP itself and its partners. This agreement tends to define the duties, liabilities, rights, and powers of the partners in the LLP.

Since this LLP Act typically governs the LLPs in India, the Indian Partnership Act, 1932 provisions are not applicable to Limited Liability Partnerships. They are only applicable to traditional partnership businesses.

Unlike corporate shareholders, the partners have the power to manage the business directly. In contrast, corporate shareholders must elect a board of directors under the laws of various state charters. The board organizes itself and hires corporate officers who then have as “corporate” individuals the legal responsibility to manage the corporation in the corporation’s best interest. An LLP also contains a different level of tax liability from that of a corporation.

Benefits of Limited Liability Partnership

  1. It is more flexible to organize the internal structure of LLP. Comparatively, it is complex to organize the internal structure of a company.
  2. There is no maximum limit for the number of partners in LLP. In the private limited company, shareholders are limited to the extent of 200 shareholders.
  3. The raising and utilization of funds depend on the partner’s will. Funds can be bought and utilized only as per the norms listed under the Companies Act, 2013.
  4. It is exempt from Dividend Distribution Tax (DDT). In contrast, a company has to pay DDT on dividend distribution.
  5. Professionals like Chartered accountants, Cost Accountants, Advocates, engineers, and doctors may prefer to register as LLPs.
  6. No requirement of compulsory audit: All companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in the case of a Limited liability partnership, there is no such mandatory requirement.

Disadvantages of Limited Liability Partnership

  1. Any act of the partner without the other partner may bind the Limited liability partnership.
  2. Limited liability partnerships cannot raise money from the public.
  3. Angel investors and venture capital firms generally prefer not to invest in LLPs. Private Limited companies are preferred over LLPs.

Limited Liability Partnership (LLP)